What drove Alibaba’s costs?
Alibaba’s (BABA) cost of revenue rose at a three-year CAGR (compound annual growth rate) of 65% to 107 billion yuan ($17.1 billion) in the fiscal year ended March 31, 2018. Here’s what drove its cost of revenue:
- higher inventory costs of New Retail businesses (Hema, Tmall Import, and Intime) and Southeast Asia’s primary e-commerce platform Lazada
- logistics costs of the Cainiao Smart Logistics Network
- bandwidth expenses due to cloud computing and core commerce business investments
- content acquisition costs
Its costs rose 80% in 2018 compared to 78% in 2015. Its cost of revenue as a proportion of revenue increased from 31% in 2015 to 43% in 2018.
Alibaba’s cost of revenue increased 150% to 43.7 billion yuan ($6.6 billion) in the quarter ended June 30, 2018. The rise in cost of revenue was due to the following:
- consolidation of the Cainiao Network and China’s online food delivery platform Ele.me
- logistics costs of New Retail businesses and Lazada
- content expenditure from China’s online video platform Youku’s original contents and the 2018 FIFA World Cup
- spending toward the user base
The costs ate up 54% of revenue in the quarter ended June 30, 2018, compared to 35% in the year-ago quarter.
How have Amazon’s costs grown over the years?
Amazon’s (AMZN) cost of sales increased at a three-year CAGR of 21% to $111.9 billion in the fiscal year ended December 31, 2017. Costs were driven by consumer products costs, digital media content costs, and product and shipping costs from higher sales. The cost of sales rose 27% in 2017 from 14% in 2015. Cost of sales as a percentage of sales decreased from 71% in 2014 to 63% in 2017.
Amazon’s cost of sales rose 34% in the six months ended June 30, 2018, to $61.4 billion for the same reasons stated above. Costs consumed 59% of sales in the six months ended June 2018 compared to 62% in the six months ended June 2017.
Cost figures for peers
JD.com’s (JD) cost of revenue was 311.5 billion yuan ($47.9 billion) in 2017 and 191.7 billion yuan ($29 billion) in the six months ended June 30, 2018.
Walmart’s (WMT) cost of sales was $373.4 billion and $187.3 billion in the fiscal year ended January 31, 2018, and the six months ended July 31, 2018, respectively.
We’ll analyze the gross profits and margins for Alibaba and Amazon in the next part.